Ask the Experts: Rising Costs in Community Association Insurance

With rising insurance costs, budgeting can be a challenge!

Hear from our panel of experts about the current state of the insurance market. Watch the replay: Ask the Experts: Rising Costs in Association Insurance.

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As insurance costs rise, associations are finding it increasingly difficult to budget for higher insurance premiums. During our webinar, Ask the Experts: Rising Costs in Association Insurance, our panel discussed best practices for managing insurance premium increases.  The discussion topics included:

• The factors driving higher rates

• The types of policies being affected

• Tips to help make your community marketable to insurance carriers

• And more

FirstService Residential strives to meet and exceed the expectations of its customers, and providing boards with information about insurance industry trends is essential to our mission of maximizing property values and enhancing residents’ lifestyles. Read on to learn more about why insurance costs are rising and what associations can do to manage higher premiums.

The Factors Behind Rising Insurance Costs

Natural Disasters

Several factors are contributing to high insurance costs, but to understand where we are today, we need to look back and see what has happened over the past few years. In 2015 and 2016, multiple insurance carriers were available in the marketplace, and rates were lower, making it a good time to shop for insurance. Many associations could reduce their insurance premiums by 40% or 50% during this time. However, the market began to change in 2017 when Hurricane Irma hit the Southern United States, causing billions of dollars in damage. As a result, insurance companies began to see an increasing number of claims. The costs associated with these, and other disaster-related claims, have been passed on to consumers.

Supply and Demand

While the number of insurers is decreasing, the demand for insurance is increasing. In response to this lack of supply and growing demand, some remaining carriers have raised their rates or limited the amount of insurance they are willing to offer.

Collapse of the Champlain Towers South in Surfside

Property insurance premiums were already on the rise before the collapse of Champlain Towers South in Surfside in 2021, but the recent $1 billion settlement for the families who lost relatives or homes will likely drive them even higher.

An Overall Increase in Property Values

Insurance carriers provide appraisals based on the cost of construction materials like steel and lumber. Inflation has caused the price of these materials to rise, which has led to higher property values. The higher the property value, the higher the insurance premium.

Litigation

Property insurers are being forced out of business by a wave of litigation and fraud. Several insurers have responded by refusing to renew specific policies, refraining from writing new business, and raising premiums for the policies they will renew. Community associations are left with fewer insurance options and are being forced to pay exorbitant premiums or accept expensive policies from last-resort insurers.

Types of Policies Being Affected

"Rates are increasing across the board for condo and community associations,” said Josh Williams, director of insurance at FirstService Residential. “Property, general liability and umbrella coverage rates are all increasing, with some carriers even adding separate wind deductibles.”  Many carriers are more selective about who they will insure, requiring full engineering reports before providing a quote to associations.

“Carriers are scrutinizing everything, including boards’ meeting minutes and vendor contracts,” said Pamela Malfavon, director of financial products and services for FirstService Financial. “Carriers want to ensure the buildings they cover are sound.”

Tips for Making Your Community More Marketable to Insurance Carriers

What can board members do to make your community more attractive to insurance carriers as underwriting has become more restrictive?

1.    First, stay connected.

Stay in touch with your insurance agent. You can get information and strategies to control premiums from them since they know the specifics about the history of your building or community. They can also tell you what information is needed to receive a quote. "Board members should contact their insurance agent months in advance to understand the conditions and requirements from carriers to secure quotes for their community," said Malfavon. "Some carriers won't provide a quote until specific documents are provided, so being proactive, asking questions and having regular conversations with your agent well in advance is important."


2.    Second, maintain a record of all property updates.

You should inform your insurance carrier about any updates or changes to your property. Even minor roof, electrical or plumbing updates should be noted. The agent's job is to present your association in the best possible light to the insurer, providing it with the information it needs to feel comfortable insuring your property.

3.    Third, find out if your property needs a new appraisal.

Since property values have increased significantly in recent years, your property may need a new appraisal, especially if it has been a while. Be sure to check the details of past appraisals, especially the square footage. If the listed square footage is higher than the actual square footage, the property will be valued higher, and the premium will be higher. It might be a good idea to start from scratch –  getting an inspection and then a new appraisal.

Budgeting for Higher Premiums

How can your association budget for higher insurance premiums and when should boards start the bidding process?

“Since property insurance is a major budget item, I recommend that our boards begin the research process during the budget planning phase, which typically starts in July,” said Keith Sensabaugh, vice president at FirstService Residential. “Property insurance can be a complex buy and is a large business decision for associations, so it’s important to give your board enough time to understand it clearly.”   

Due to a limited number of carriers in the market handling numerous renewals and quotes, the bidding and quoting process can take much longer than usual. Underwriters need a lot of information, and preparing a quote can take some time. Start the process at least 150 days before your policy's renewal date – so you won't have to scramble at the last minute.

Another piece of good advice is to always included your current insurance carrier in the bidding process – you may already have the best deal for your community.

A professional property management company will work with your board to ensure you have the best rates, setting your community up for successful policy renewal.

“Our role at FirstService Financial is to provide guidance for the communities managed by FirstService Residential, review options and advise the board on the best policy for their community,” said Malfavon. “We’re here to point our clients in the right direction.”

When budgeting for higher premiums, your association may want to consider alternative financing options if it lacks the cash it needs to pay for them. Opening a line of credit or securing a loan may be viable options. Remember, reserves should not be used for property insurance because it is considered an operating expense, but if you believe your community has unique circumstances, consult your association's attorney.

FirstService Residential is committed to continuing to provide the exceptional service and management and financial solutions expected by the boards we serve. Contact us today for more information on how we can assist your association with managing soaring premiums.